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Ask Lane Your Own Question
Category: Tax
Satisfied Customers: 12481
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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What specific irs tax law states that a C corporation's NOL

Customer Question

what specific irs tax law states that a C corporation's NOL or Profit can not go on the personal (1040) return?
Submitted: 2 years ago.
Category: Tax
Expert:  Lane replied 2 years ago.
The C-Corp is a separate taxable entity, pays it's own taxes at Corporate tax brackets and rates Just as with an IRRevocable trust.
In corporate law the Corporation is called a fictitious person.. because it IS a separate entity.
This is what causes the double taxation one hears about with C-Corps.
The C-Corp files an 1120, pays it's corporate taxes, and then if the owner wants any income from the company, they declare a dividend and then send out the dividend (reporting that on a 1099-Div), and the owner (after there's less TO pay out because the C-Corp already paid it's taxes) pays taxes on the dividends; hence, double taxation.
Here's the IRS guidance:
From there (first paragraph):
" For federal income tax purposes, a C corporation is recognized as a separate taxpaying entity. A corporation conducts business, realizes net income or loss, pays taxes and distributes profits to shareholders."
"The profit of a corporation is taxed to the corporation when earned, and then is taxed to the shareholders when distributed as dividends. This creates a double tax. The corporation does not get a tax deduction when it distributes dividends to shareholders. Shareholders cannot deduct any loss of the corporation."
IRS, of course, IRS only administers the Law. The Tax Code (created by congress) can be found at title 26 U.S. Code.
Corporation and corporate distributions are covered in 26 U.S. Code Chapter 1, Subchapter C
Please let me know if you have questions at all...